Health Industry Bidding to Hire Medicare Chief

By Robert Pear for the New York Times, 12/03/03

WASHINGTON, Dec. 2 - The federal official who runs Medicare and was
intimately involved in drafting legislation to overhaul the program is the
object of a bidding war among five firms hoping to hire him to advise clients
affected by the measure.

Though the official, Thomas A. Scully, is not widely known outside
Washington, his exhaustive knowledge of the Medicare program and the intricacies
of the legislation, approved by Congress last week, would make him a prize catch
for any law firm or private equity firm.

In an interview on Tuesday, Mr. Scully said that his discussions with
potential employers complied with federal ethics regulations and that he had
seen no reason to recuse himself from work on the legislation. He said he had
consulted with the top ethics officer for the Department of Health and Human
Services and received a waiver allowing him to continue work on the bill. The
department confirmed his account.

Mr. Scully has made no secret of the fact that he has been looking for jobs
outside the government for more than six months - even as he spent hundreds of
hours in closed sessions with House and Senate negotiators working out countless
details of the legislation, which makes the biggest changes in Medicare since
creation of the program in 1965.

Experts on the federal ethics law said they could not judge the propriety of
Mr. Scully's actions without knowing the terms of the waiver, which have not
been made public.

Mr. Scully said Tuesday evening, after several earlier interviews about his
job negotiations, that he was submitting a letter of resignation and would step
down on Dec. 16. He said he had not decided which of the five jobs to take.

Gail E. Shearer, a health policy analyst at Consumers Union, said Mr.
Scully's discussions with prospective employers were troubling. "At a time when
there are questions about whether the Medicare legislation serves special
interests or consumers, we want to know that our public officials have their
minds totally focused on doing what's best for consumers," she said.

For his part, Mr. Scully said, "I'm not the most popular guy in the world,
but nobody has ever accused me of being other than honest."

After federal employees resign, they are subject to a permanent ban on
"switching sides." They cannot try to influence the government on a "particular
matter" in which they were personally and substantially involved. In addition,
federal law establishes a one-year "cooling-off period," during which former
senior officials are not supposed to lobby at all before the agencies where they
worked. But they often give clients informal advice about navigating the federal
bureaucracy.

President Bush plans to sign the Medicare bill, a centerpiece of his domestic
agenda, on Monday. The bill not only offers drug coverage to all 40 million
beneficiaries, but also changes Medicare payments to most health care
providers.

Mr. Scully, who served as a White House budget official in the first Bush
administration, has run Medicare and Medicaid since May 2001.

In the interview on Tuesday, Mr. Scully said that he tentatively decided last
May to leave the government but that he stayed on, at the request of the Bush
administration, to work on the Medicare bill.

"I have been talking to a number of law firms and private equity firms," he
said. "My hope is to combine work at a Washington law firm and a Wall Street
investment firm."

Mr. Scully said that after consulting with the ethics officer he saw no
reason to disqualify himself from work on the legislation or on regulations that
affected clients of the five firms.

"My job negotiations were not serious enough," he said.

A summary of ethics rules issued by the Department of Health and Human
Services says employees who have begun seeking jobs in the private sector must
immediately recuse themselves from "any official matter" that involves the
prospective employer. This covers legislative initiatives and proposed rules,
the document says.

A spokesman for the department said that Mr. Scully's waiver allowed him to
work on "matters of general applicability like the Medicare reform bill" while
he talked to potential employers. As administrator of the Centers for Medicare
and Medicaid Services, Mr. Scully receives a salary of $134,000 a year. Lawyers
and lobbyists said he could easily earn five times that in the private sector
because he has extensive knowledge of the Medicare program and can offer clients
access to senior administration officials.

In his last job, as president of the Federation of American Hospitals, a
trade group for investor-owned hospitals, Mr. Scully made $675,000 a year.

No one has suggested that Mr. Scully took any position in return for a job
offer. In some cases, he took positions contrary to those of the lobbyists with
whom he was discussing employment. But sometimes their positions coincided.

Mr. Scully said he had been talking with three law firms and two private
investment firms. He identified them as follows:

Alston & Bird. The firm, based in Atlanta, represents the National
Association for Home Care and Johnson & Johnson, among other clients. The
Washington office is headed by a college friend of Mr. Scully's and includes
Bob Dole, the former Senate Republican leader.

Baker, Donelson, Bearman, Caldwell & Berkowitz. The firm represents
the Disease Management Association of America, which scored a major victory in
the Medicare bill, authorizing payment for services provided by its members to
people with chronic illnesses. The firm, which includes Linda H. Daschle, wife
of the Senate Democratic leader, has also represented the American Association
for Homecare, Amgen and the Federation of American Hospitals.

Ropes & Gray. The firm, based in Boston, represents the Pharmaceutical
Research and Manufacturers of America, the main lobby for the brand-name drug
industry. It focused on changes in drug patent laws, one of the hottest issues
in the Medicare bill. It also represents many drug companies including Abbott
Laboratories, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, Novartis and
Pfizer.

Welsh, Carson, Anderson & Stowe. A private equity investment firm
based in New York, it has invested in many health care businesses. It has a
major stake in U.S. Oncology, which manages cancer treatment centers and
lobbied for more adequate payments under the Medicare bill.

Texas Pacific Group. A private investment partnership, it manages assets
worth more than $13 billion. It helped rescue Oxford Health Plans, which
suffered severe financial problems while Mr. Scully was a member of Oxford's
board.

James C. Duff, managing partner in the Washington office of Baker, Donelson,
said: "Our firm would be a perfect fit for Tom because we have built one of the
top health care practices in the country. We do both legal and lobbying work.
Tom's recent experience at the highest levels of the government makes him very
attractive to our firm."